July 12, 2022

Key California Employment Law Cases: June 2022

Viking River Cruises Inc. v. Moriana, 142 S.Ct. 1906 (2022)

Summary: The FAA “preempts the rule of Iskanian insofar as it precludes division of Private Attorneys General Act (“PAGA”) actions into individual and non-individual claims through an agreement to arbitrate.” 

See our in-depth analysis HERE

Grande v. Eisenhower Medical Center, No. S261247, 2022 WL 2349762 (Cal. June 30, 2022)

Summary: Res judicata did not bar claims in a class action against a hospital where a staffing agency had previously entered into a class action settlement agreement that did not explicitly release the hospital from all related claims.

See our in-depth analysis HERE

Meza v. Pacific Bell Telephone Co., No. B317119, 2022 WL 2186251 (Cal. Ct. App. June 17, 2022)

Summary: Labor Code section 226(a)(9)’s requirement to list “hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate” does not apply to overtime true-up payments that relate to a past pay period. 

Facts: Plaintiff Dave Meza filed a class action lawsuit against his former employer, Defendant Pacific Bell Telephone Co., alleging several California Labor Code violations, including failure to provide compliant meal and rest periods and failure to provide accurate wage statements. The trial court: (1) denied class certification as to five meal and rest period classes; (2) granted summary adjudication on the wage statement claim in favor of Defendant; (3) struck Plaintiff’s claim under section 226(a)(6); and (4) granted summary adjudication of Plaintiff’s California Labor Code Private Attorneys General Act (“PAGA”) claim in favor of Defendant. Plaintiff appealed these four orders. 

Court’s Decision: In the published portion of its opinion, the California Court of Appeal affirmed the trial court’s order granting summary adjudication of Plaintiff’s wage-statement claim. Plaintiff’s claim was based on how Defendant represented lump-sum overtime payments on its wage statements, specifically an overtime “true-up”—additional overtime wages owed based on performance bonuses earned in earlier pay periods. The calculation involved a complex formula, and Defendant typically listed this payment on the first wage statement of the month after the employee earned it. When the true-up was listed, it did not include information in the “rate” and “hour” columns of the employee’s wage statement. Plaintiff contended this practice violated section 226(a)(9). The court disagreed, interpreting section 226(a)(9) as not requiring an employer to list the rate and hours information from prior pay periods. The court held that a straightforward reading of this section showed that it required a listing of hourly rates “during the pay period,” and not “an artificial, after-the-fact rate calculated based on overtime hours and rates from preceding pay periods that did not even exist during the time of the pay period covered by the wage statement.” 

Practical Implications: This decision is welcome news for employers who have struggled for some time with the lack of guidance from the California courts on their wage-statement obligations for overtime true-up payments. 

Johnson v. WinCo Foods LLC, 37 F.4th 604 (9th Cir. 2022) 

Summary: An employer is not obligated to compensate prospective employees for time and expenses to take a mandatory drug test. 

Facts: Defendants Winco Foods LLC and Winco Holdings Inc. required successful job applicants to take a drug test as a condition included in its offers of employment. Plaintiff Alfred Johnson filed a class action on behalf of himself and Defendants’ other California employees, seeking compensation for time spent and expenses incurred taking the drug test. After Defendants removed the action to federal court and the district court granted Plaintiff’s motion for class certification, both Plaintiff and Defendants filed motions for summary judgment. The district court granted Defendants’ motion, holding that “Johnson and class members were not employees of Winco Foods when they underwent drug testing.” Plaintiff appealed.

Court’s Decision: The Court of Appeals for the Ninth Circuit affirmed the district court’s holding “that the class members were not employees at the time of the drug test and did not need to be compensated.” The court rejected Plaintiff’s “control” argument, noting that “[d]rug testing, like an interview or preemployment physical examination, is an activity to secure a position, not a requirement for those already employed.” The court also rejected Plaintiff’s “condition subsequent” argument, finding that “the class members did not become employees until they satisfied the condition of passing the preemployment drug test.”

Practical Implications: Like the Meza case discussed above, this case provides much-needed clarity on a question that arises frequently for employers in California. Employers should not read too much into this decision, though. The case only applies to pre-employment mandatory drug tests, and does not purport to alter existing rules for mandatory drug tests during employment. 

Southwest Airlines Co. v. Saxon, 142 S.Ct. 1783 (2022)

Summary: An employee who loads and unloads cargo that travels in interstate commerce belongs to a “class of workers engaged in foreign or interstate commerce” and, as such, is exempt from the coverage of the FAA. 

Facts: Plaintiff Latrice Saxon was a ramp supervisor for Defendant Southwest Airlines Co. Defendant’s ramp supervisors trained and supervised teams of ramp agents who loaded and unloaded baggage, airmail, and freight on Defendant’s airplanes. Plaintiff brought a wage-and-hour class action against Defendant under the Fair Labor Standards Act. Defendant sought to enforce its arbitration agreement with Plaintiff under the Federal Arbitration Act (“FAA”). Plaintiff argued that she was exempt under Section 1 of the FAA as part of a “class of workers engaged in foreign or interstate commerce.” The district court found that “only those involved in the ‘actual transportation,’ and not the ‘mer[e] handling [of] goods,’ fell within the exemption.” The Court of Appeals for the Seventh Circuit reversed, holding “[t]he act of loading cargo onto a vehicle to be transported interstate is itself commerce, as that term was understood at the time of the [FAA’s] enactment in 1925.” The United States Supreme Court granted certiorari to address a conflict with an earlier decision from the Fifth Circuit Court of Appeals. 

Court’s Decision: The Supreme Court affirmed the judgment of the Seventh Circuit. The Court held that the class of workers who physically load and unload cargo on and off airplanes on a frequent basis are engaged in interstate commerce. The Court reasoned that those individuals who load and unload cargo on and off airplanes traveling in interstate commerce are “as a practical matter, part of the interstate transportation of goods.” They are “intimately involved with the commerce,” and are loading and unloading cargo while the interstate transportation still is in progress.

Practical Implications: California employment arbitration law has seen significant shifts over the last couple years. From AB 51’s ban on mandatory arbitration, to the decision in Viking River Cruises permitting arbitration of individual PAGA claims, employers in California face a very different landscape than they did just two years ago. This case adds yet another consideration for employers involved in the transportation industry. Employers with employees who, like the ramp agents in Saxon, are not directly crossing state lines but are nonetheless involved in the physical movement of goods in interstate commerce, should consider carefully whether revisions to their arbitration agreements, such as invoking state rather than federal procedure, may be necessary to avoid the risk that the FAA’s “foreign or interstate commerce” exception will render their arbitration agreements unenforceable.

Hamilton v. Wal-Mart Stores Inc., No. 19-56161, 2022 WL 2350262 (9th Cir. June 30, 2022)

Summary: Rule 23(b)(3) manageability requirement cannot be imposed on PAGA claims. 

Facts: Plaintiff Alyssa Hernandez brought various wage-and-hour claims, including claims under the California Labor Code Private Attorneys General Act (“PAGA”), against her former employer, Defendants Wal-Mart Stores Inc. and Wal-Mart Associates Inc. Plaintiff alleged that Defendants did not fully compensate employees for all time spent going through security checkpoints and that it did not provide proper meal and rest breaks; she also asserted derivative waiting-time and wage-statement claims. Defendants moved for summary judgment on the PAGA claims, arguing, among other things, that the claims were unmanageable and that Plaintiff had failed to seek certification of these claims under Rule 23 of the Federal Rules of Civil Procedure. The court dismissed the PAGA claim related to the security checkpoint issue as unmanageable and dismissed the remaining PAGA claims for failure sufficiently to disclose estimated damages under Rule 26(a) of the Federal Rules of Civil Procedure. After a bench trial on Plaintiff’s remaining claims, Plaintiff appealed the dismissal of her PAGA claims. 

Court’s Decision: The Court of Appeals for the Ninth Circuit reversed. First, the court held that because PAGA actions “exhibit virtually none of the procedural characteristics of class actions,” they need not satisfy Rule 23 class certification requirements. Second, the court rejected Defendants’ argument that the district court had inherent authority to strike the PAGA claims as unmanageable. The court found that imposing a manageability requirement in PAGA actions “would not constitute a reasonable response to a specific problem and would contradict California law by running afoul of the key features of PAGA actions.” Third, the court found that the district court erred in dismissing some of Plaintiff’s PAGA claims as a discovery sanction for Plaintiff’s failure sufficiently to disclose estimated damages under Rule 26(a). Because PAGA provides for recovery of civil penalties, and not damages, Rule 26 did not apply.

Practical Implications: This case is a blow for employers in California. PAGA claims frequently present significant, practical manageability concerns, and employers historically have had success in using those concerns to forestall otherwise protracted, expensive, and messy litigation. This issue, however, is not yet resolved as a matter of California state law. The California Supreme Court has granted review in Estrada v. Royalty Carpet Mills Inc., 76 Cal. App. 5th 685 (2022), which created a split in the court of appeal, compare Wesson v. Staples the Office Superstore, 68 Cal. App. 5th 746 (2021), over whether a state trial court has the inherent authority to strike an unmanageable PAGA claim. We will be watching this case closely.